Saudi Aramco in early talks on jumbo debt deal

LONDON (LPC) - Oil and gas giant Saudi Aramco is having preliminary talks with banks about a potential debt financing of up to US$70bn to back its acquisition of a majority stake in Saudi petrochemical firm Sabic, banking sources said on Wednesday.

FILE PHOTO: The logo of Saudi Aramco is seen at Aramco headquarters in Dhahran, Saudi Arabia May 23, 2018. REUTERS/Ahmed Jadallah/File Photo

Aramco is looking at buying a strategic stake in Sabic, the world’s fourth-biggest petrochemicals company, from Saudi’s Public Investment Fund (PIF), which owns a 70% stake worth around US$70bn.

Bankers say a potential financing of US$50-70bn is a strong possibility. A deal of this size would set a new record for the region and give sovereign wealth fund PIF cash to fund Saudi’s ambitious Vision 2030 plan to diversify its oil-dependent economy.

“This is the big one, it could be the largest Middle East deal ever – the deal of the decade in terms of quantum. We are very interested in it and we are actively pitching for it,” a banker said.

Aramco’s acquisition of a stake in Sabic follows Saudi Arabia’s postponement of its plans in August to raise US$100bn by listing 5% of Aramco in 2019, which would have been the biggest IPO ever.

One US investment bank’s syndicated loans team is holding discussions with Aramco this week, a second banker said.

Discussions about Aramco’s financing are expected to get underway in earnest next week after PIF signs a US$11bn five-year syndicated loan, which will also help to fund Saudi’s economic transformation plans.

“There have been soft but high level discussions. I think Saudi is trying to make banks focus on the current (PIF) deal but is also preparing banks for what is coming,” the first banker said.

Aramco was not immediately available for comment.

Bankers expect a bond-heavy structure, with around 80% of the total consisting of a one or two year bridge loan to bond issues and 20% of the deal consisting of a five-year term loan. Bankers expect Aramco to issue bonds to refinance the bridge loan in 2019.

“It will be a one or two year bridge loan with a five year term loan of about 20% of the amount asked for. There will be good appetite in the bond market to take it out,” the first banker said.

Aramco is expected to approach relationship banks to discuss how a deal could be structured and will follow these discussions with a request for proposals. Banks will be seen on a bilateral basis, as with the recent PIF loan.

The size of the potential financing will require some preparatory work. While Saudi Arabia’s credit rating of A-/A1 by S&P and Moody’s is not a concern, some banks could have to temporarily increase their country limits, bankers said.

“The credit is easy, the quantum less easy, it will all be about country limits. Although Saudi Arabia is highly rated country limits are not unlimited,” the first banker said.

“It’s a unique transaction and we can increase country limits just for this transaction - a lot of banks will need to do this,” he said.